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Should You Have More Than One Brokerage Account?
By JLP | March 23, 2006
I recieved this question from a reader:
While I am pretty comfortable that my investments are well diversified, it has occurred to me that it might be wise to be using more than one broker. Currently, the vast majority of my assets are invested with Ameritrade. Is there a compelling reason (like safety) to have more than one?
Personally, I don’t think it is necessary to have more than one brokerage account. The investments you hold inside your account are yours and not the brokerage firm’s. So, if something were to happen to the brokerage firm (merger or bankruptcy), your investments would still be your investments. The only reason I could see to having more than one broker is if you were planning to move your money from one broker to the next. Then, it would be smart to open an account at the new firm BEFORE leaving the old firm.
Topics: Investing | 7 Comments »
March 23rd, 2006 at 8:01 am
I’m not absolutely positive about this, but when I asked my financial planner whether it would be better to keep my emergency fund in an FDIC insured savings account vs. a Fidelity money market account, he indicated that most brokerage accounts are insured up to a certain amount. If you have assets in excess of that amount, then it might make sense to have two accounts with two brokerage firms.
March 23rd, 2006 at 10:39 am
Aren’t brokerage accounts insured to a higher level than FDIC though? With FDIC, it’s 100K so it’s nt recommended to go over that, but I thought it was much higher for brokerage accounts, which are insured by a different entity…
March 23rd, 2006 at 10:59 am
Yeah, I think my banks are up to $100,000 on the FDIC insurance limit. I don’t use a brokerage firm, but it’s definitely something you should ask your firm.
March 23rd, 2006 at 12:22 pm
Herb..I’m not sure what the actual amount is for most brokerage companies, but yes, it’s definitely higher than the current $100,000 FDIC insurance limit. I think my financial planner said $1 million for Fidelity. But again, don’t quote me on that. My point is that if you have a ton of assets (i.e., you’re a multi-millionaire), you might want to have 2 brokerage accounts. I don’t think most of us who are reading this blog fall into that category.
March 23rd, 2006 at 7:27 pm
Yeah, I agree that you really only need one brokerage account. It would just be too unweildy to manage more than one.
March 23rd, 2006 at 7:48 pm
The reason I can think of would be if there is research you would like to have access to from each brokerage. For example, you might split funds between one broker that has very low costs and another that offers solid research on securities that interest you.
March 25th, 2006 at 1:14 am
Don’t forget that there are good reasons to keep your brokerage activity with one broker. All brokers offer “break points” where their fees are reduced or eliminated. For example, I use TD Waterhouse, which charges inactivity fees (in brokerage accounts, but not in retirement accounts), however, these fees are waived if your total account balances exceed $25,000. Similarly, as account balances increase, commissions decline. Access to advice and research (and top investing talent) is also related to accounts invested.
It’s easy to feel nickel-and-dimed at many banks and brokerages. Resist the temptation to “spread it around” – they know who their best customesrs are, and the rules are really different for them. Find a brokerage that meets your needs, focus on being a good customer, and reap the benefits.